Ferrer, Mikka Ela A.

Fabros, Erika Mae A.

Lim, Ashley Jamaica M.
Sampaga, Kristine Joyce M.

Chapter 6
ESTATE TAX AND NET DISTRIBUTABLE
ESTATE

NATURE OF ESTATE TAX

1. Exercise of Sovereignty- the state protects the rights of the individual on his
property and supervises its transfer from one generation to the next.
2. An excise tax- the estate tax is imposed on the right of the deceased person to
transmit gratuitously his/her properties to his/her lawful heirs and beneficiaries
at the time of death.
3. A transfer tax accruing at the moment of death- the obligation to pay the
estate tax accrues at the moment of death
4. An ad valorem tax- the basis of valuation to compute the estate tax is the fair
market value of property transferred at the time of death.
ESTATE TAX VS. INHERITANCE TAX
-an estate tax is NOT an inheritance tax. It is a tax chargeable against the
decedents net taxable estate accruing at the time of his death.
ESTATE TAX
-is a tax on the transfer of the net estate of the decedent.
ESTATE TAX OF CITIZEN OR RESIDENT ALIEN
-for estate tax purposes, the gross estate of citizens (a resident or nonresident)
and resident aliens at the tine of death shall include all the property of the
decedent, real or personal, tangible or intangible, wherever situated but not
included the exclusive property of the surviving spouse.

ESTATE TAX CREDIT

Tax Credit - it is not allowed to nonresident aliens because they are taxed only on
properties situated within

LIMIT ON FOREIGN ESTATE TAX CREDIT

1. One foreign country estate tax credit limit
= Net estate in foreign country / world net estate Philippine estate tax or
= The actual estate tax paid to foreign country, whichever is lower.

2. Several foreign countries estate tax credit limit

= Total foreign net estate / World net estate Philippine estate tax due

ESTATE TAX ON NONRESIDENT ALIEN

1. With Reciprocity
- Intangible assets are excluded for estate tax purposes
2. Without Reciprocity
-All of the properties situated in the Philippines are subject to Philippines estate
tax.
ADMINISTRATIVE REQUIREMENTS
For estate tax purposes, the requirements are summarize as follows:
Value of Gross Estates
Exceeds Exceeds Exceeds
Requirements: P20,000 P200,000 P2,000,000

1.Notice of death (within 2 months) Yes Yes Yes

2.Estate tax return* (within 6 months) No Yes Yes
3.CPA certificate (within 6 months) No No Yes
ADDITIONAL REQUIREMENT
- for the registration of the estate of the decedent and getting a separate TIN
for the estate pursuant to section 236 of the R.A. 8424.
LIABILITY FOR PAYMMENT OF ESTATE TAX
1. Primary Obligation
-the executor or administrator shall pay the estate tax.
2. Subsidiary Obligation
-the heirs or beneficiaries have subsidiary liability to pay the estate tax.
NOTICE OF DEATH
This is required if:
1. Gross transfer is subject to estate tax, or
2. Gross estate exceeds P20,000.
Take Note: Notice of death filing shall be made within 2 months after decedents death.

FILING AND PAYMENT OF ESTATE TAX RULES:

1. Estate tax return is to be filed if the gross estate exceeds P200,000.
2. The estate tax return showing a gross value exceeding P2,000,000 shall be
supported with a statement duly certified by CPA.
3. The estate tax return shall be filed within 6 months from the decedents
death.
4. A reasonable extension for filing the return, not exceeding 30 days.
 5. The executor, administrator or the heirs shall pay the estate tax imposed
under the Code at the time the return is filed.
6. The BIR commission may extend the time for payment of such tax or any
part thereof not to exceed 5 years in case the estate is settled through the
courts, or 2 years in case the estate is settled extra-judicially.
7. The commissioner will grant no extension if the request for extension is by
the reason of negligence, intentional disregard of rules and regulations or
fraud.
8. Any amount paid after the statutory due date of the tax, but within the
extension period shall be subject to interest but not to surcharge.
9. The request for extension shall be filed with the Revenue District Officer
(RDO). The application shall be approved by the commissioner or his duly
authorized representative.
SURCHARGES, INTEREST & PENALTIES
-these are imposed in the event of violation of the law, criminal penalties and civil
liabilities.
*25% Surcharge
1. Failure to file on or before the due date;
2. Filing a return with a person or office other than those with whom it is required
to be filed;
3. Failure to pay the full or partial amount of tax for which no return is required to
be filed on or before the due date;
4. Failure to pay the deficiency tax within the time prescribed.
*50% Surcharge
1. Willful neglect to file the return within the period prescribed
2. The return filed is false or fraudulent.
>Interest- 20% per annum shall be imposed on the basic unpaid amount of tax
from the date prescribed for payment until the amount is fully paid.
PAYMENT OF ESTATE TAX BY INSTALLMENT
1. A clearance shall be released only with respect to the property the
corresponding/computed tax on which has been paid.
2. Any amount paid after the statutory due date of the tax shall be imposed
the corresponding applicable penalty thereto.
3. If the payment of tax after the due date approves, the imposable penalty
thereon shall only be interest.
4. The commissioner may enforce action against the estate after due date of
the estate tax.
SAFEGUARDS FOR THE PAYMENT OF ESTATE TAXES
1. The executor or administrator should not distribute the estate until the
taxes are paid;
2. The Register of Deeds shall not register any deed or instrument covering
the decedents estate until the taxes are shown to have been paid;
3. No corporation shall register in its transfer books of shares or bonds of the
decedents estate until the taxes are paid;
4. A debtor of the decedent cannot be required to pay debts to the heirs but
may pay the debts to the executor or administrator; or
5. Every notary public who intervened as such in any instrument affecting the
estate or part thereof must furnish copy of said instrument to the
Commissioner of Internal Revenue.
NET DISTRIBUTABLE
- represents the value of the net estate which shall be inherited by the heirs
of beneficiaries.
NET DISTRIBUTABLE ESTATE VS. NET TAXABLE ESTATE
- the former represents the net value of the actual inheritance, while the
latter represents the net amount of estate subject to estate tax.